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Big data ushers in the predictive future

Broker-dealers are figuring out how to position themselves to deliver on this disruptive technology

Advisers already use big data to analyze their clients' behavior and measure themselves against the competition.

But the predictive abilities that experts say are coming from the massive amounts of information being gathered around the web will be a game changer, and broker-dealers are figuring out how to position themselves to deliver on this disruptive technology.

InvestmentNews gathered eight broker-dealer professionals in Weston, Fla., during the Technology Tools for Today conference on Nov. 2 to discuss what advisers should expect next.

“The data has been there for a long time, but we have seen dramatic movement in the tools,” said Mukesh Mehta, chief information officer for Cetera Financial Group Inc. “I think the future is going to be the predictive component.”

Amazon.com Inc., for example, already uses such prognostic analytics to evaluate a customer's buying habits and predict which additional products she might be interested in purchasing.

How could the holdings and other known data about a financial adviser's client be analyzed and compared to the universe of investors to predict how likely that person would be to switching investments, Mr. Mehta wondered.

The goal with big data is to offer advisers more insight into the decisions being made and maybe even identify trends or client risks that are poised to occur, said Aaron Spradlin, chief information officer at United Planners Financial Services.

He thinks outside software and other technology vendors will be the key to making it possible for broker‑dealers to bring predictive elements to advisers.

“When you look at big data, it's very sophisticated, and there's some really cool tools out there, but it's not easy to do,” Mr. Spradlin said.

The majority of United Planners' investment to date has been in the collection phase, pulling together massive amounts of data about advisers and clients.

It's able to offer advisers some compliance guidance today, such as looking at trends and behaviors and using those to write better alerts, he said.

The giant investment it will take to jump to the next level of predictive big data isn't something a small broker-dealer can afford to take on, Mr. Spradlin said.

“I don't have money to invest significantly in this area, and I think that's where we're hoping for innovation from the industry, from firms like Redtail Technology or bigger firms that might step in and say, 'Hey, pass us the data, we'll automate it and pass it back,'” he said.

James Clabby, chief information officer at AIG Advisor Group, said advisers already can use detailed client information as a tool to make better decisions. For example, advisers can pull together a list of all clients with a certain amount of assets and a certain percentage of that in cash, and engage them on where that money might be invested.

These sorts of “little big data” examples, a term many of the professionals agreed best describes how advisers are using these analytics today, increasingly abound.

David Blisk, chief executive of Spire Investment Partners, said his firm's systems can integrate financial data by household across multiple custodians so advisers can see their average billings and identify clients who are outliers.

Such fee analysis is a great way to show advisers they are not charging too much for their services and discourage them from lowering the amount they charge.

“We can show them across our entire company what fees look like for these sized accounts,” Mr. Blisk said. “For folks like me, the boutiques, that's pretty cool.”

Broker-dealers seem to agree that the advent of additional uses of big data analytics is likely to spur more attention from government and industry watchdogs.

“You're going to have some regulator come down and say, 'You know that big data you thought you were going to take advantage of? No, we're going to regulate that as well,'” said Darren Tedesco, managing partner for innovation and strategy at Commonwealth Financial Network. “Just like everything happens in our industry, it gets regulated.”

Regulation isn't the only risk, though.

“There's the danger that we face that we could become so effective at using big data about individual clients and their decisions and their plans that it might actually alienate some people,” said Gary Gagnon, vice president of technology for Cambridge Investment Research Inc.